Ray Rowlands

Comment - Soft Drinks & Water - India and Multi-Nationalism

By | 16 October 2012

This month, Ray Rowlands of independent beverage research company Drinksinfo investigates the recent outrage caused by the intended opening of the Indian retail market to foreign investors, and compares the impact that a similar development has had on the country’s soft drinks market.

Last month, India was rocked by demonstrations against proposed government reforms that would allow foreign companies like Tesco and Walmart to operate in the country’s retail market.

The opposition party has claimed that the country is heading towards economic slavery whilst the populous at large is concerned that foreign giants will crush India’s extensive traditional retail sector that employs around 40m people. According to the UK’s Guardian newspaper, a single Walmart supermarket could displace over 1,000 traditional stores.

This is obviously a huge concern when it comes to unemployment. Some critics go further and claim that such a 'foreign invasion' would destroy the very social fabric of the country.

But, this negative outcry is overlooking the fact that foreign multi-nationals are already operating within India’s borders and have actually created employment whilst contributing to economic development through high level capital investment, technological advances and innovation, whilst reducing the foreign exchange gap.

For a long time, India had a restrictive policy in terms of direct foreign investment. However, this situation changed during the era of liberalisation that commenced in the early-1990s. It was after this watershed that Coca-Cola Co re-established itself in the country. The American giant had initiated bottling operations in India in 1950 but formally withdrew from the market in 1978 rather than be subject to the Foreign Exchange Regulation Act of 1973. This regulation made it mandatory for foreign companies to dilute their shareholdings, thereby giving Indian partners a controlling company interest.

The company re-entered the market in 1992 through its wholly-owned subsidiary, Coca-Cola India Pvt Ltd.

Coca-Cola’s presence has actually created jobs rather than removing them. Today, it is India’s largest beverage company. The company's Indian division employs over 25,000 people across its 56 factory locations (including franchised and contract packing facilities), whilst indirectly creating work for a further 150,000.

Okay, maybe this is a somewhat simplistic view; after all, Coca-Cola gained its position not merely through organic growth but also through a process of acquisition. In 1993, it bought several soft drinks brands including Gold Spot (orange flavoured), Limca (lemon-lime) and Thums Up (cola) plus Maaza fruit drink from Parle Agro Pvt, owned by a faction of the influential Chauhan family. This gave Coca-Cola an immediate majority share of the Indian soft drinks market. 

However, this was not merely a swapping of brands and employment opportunities from one company to another. Parle Agro has continued to thrive as one of India’s leading food and beverage companies. With factories operating across the country, it still supplies a range of soft drinks including Appy (apple), LMN (lemon), Frooti (mango) and Saint juices. In 1993, it also entered the bottled water market with Bailley. The brand now has around 50 bottling sites across India with more planned.

Hence, foreign investment does not necessarily lead to mass redundancies. Moreover, multi-nationals can offer substantial financial support to further boost employment opportunities.

In June this year, Muhtar Kent, the CEO of Coca-Cola, announced that the company will invest a further U$5bn in India by 2020 as the company seeks to raise its presence in one of its fastest-growing emerging economies. This is on top of the US$2bn already committed over the past two decades.

PepsiCo India, which has a workforce of 6,400 (across 41 bottling and food plants) and claims to provide indirect employment for almost 200,000, has also made a strong financial investment in the country. Since PepsiCo entered the market in 1989 it has invested in excess of U$1bn.

Apart from job creation and the financial investment provided by these two soft drink multi-nationals, it should not be forgotten that their arrival has also been beneficial in respect of product innovation. PepsiCo India acted as a catalyst in the establishment of the country’s ice tea category when it launched Lipton Ice Tea in 2004, in conjunction with Hindustan Unilever Limited. More recently, Coca-Cola India has launched Maaza Milky Delite (a blend of juice and milk) plus Nestea iced tea in 2010, followed by Minute Maid 100% juice in 2011.

Of course, there has also been an almost inevitable downside to the arrival of these super powers. A huge demand for water to satisfy soft drink production needs has led to frequent complaints of excessive extraction of ground water where shortages are a perennial issue. However, this is really a problem of scale rather than multi-nationalism, as are the market share losses suffered by smaller players in the soft drinks market under the onslaught of the superior marketing and distribution resources at the disposal of Coca-Cola and PepsiCo.

So, multi-nationalism is certainly not without its faults: Far from it.

Common complaints leveled at multi-nationals include exploitation of natural resources, pollution and environmental hazards plus economic over-dependency. However, much the same can be said of any major-sized national company.

To my mind, one of the main disadvantages that comes hand-in-hand with the arrival of multi-nationals is the trampling underfoot of traditional products to make way for universal brands like Coca-Cola, Sprite and Pepsi.

But that, I guess, is just one of the downsides of progress.

Expert analysis

Consumer Trends in the Soft Drinks Market in India

This report provides the results for the Soft Drinks market in India, from Canadean’s unique, highly detailed and proprietary online survey of consumers’ Consumer Packaged Goods (CPG) consumption habits, and forms part of an overall series covering all CPG product markets.

Sectors: Soft drinks, Water

Companies: PepsiCo, Coca-Cola Co, Sprite

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